Back to the drawing board with the UK?

THE BBC reported last week that the United Kingdom’s economy dipped 0.3 per cent during the last quarter of 2012. The report went on to suggest that the decline has fuelled fresh fears that the economy could re-enter recession. That would not only be bad news for Britons, but also for regional states which, as tourism destinations in the Caribbean, depend heavily on British visitors to boost tourism industries. If there is a recession people are unlikely to travel and depending on what measures are pursued from here on, people will be more inclined to be cautious as they go about their spending not knowing the medium to short-term outlook.

This recession continues to have a real dampening effect on people and it seems that it will continue to be with us for very much longer than was originally thought. However, inasmuch as there will be concerns in these parts, this takes us back to the important issue of credit ratings, as we recall the grade given to the UK economy not too long ago by one of the international rating agencies.

Last year Standard and Poor’s confirmed a favourable rating for the United Kingdom when it downgraded others. What was so puzzling, as one commentary had suggested, was that S&P affirmed the triple A rating for the British economy which was into its second bout of recession since 2009. The reason cited by S&P was that the UK economy should grow by the second half of this year, although the International Monetary Fund (IMF) had a different perspective on what was taking place in that country and the way the economy was performing. In fact, the IMF was suggesting that the British Government should move with haste in relaxing some of the austerity measures to give more breathing space to the economy.

The growth in the UK economy which Standard and Poor’s had projected was, according to the recent BBC report, of the order of 0.9 per cent in the third quarter. It had stemmed from the London Olympic Games, but with much of the activity surrounding those Games now removed, the economy appears to have fallen back into the rough patch.

How the Government in London reacts to this latest downturn will be interesting. What it does suggest, however, is that more serious planning will have to be undertaken for regional tourism industries as far as the UK market is concerned. In Barbados for instance, British visitors account for almost 39 per cent of the long-stay arrivals. Since they usually spend an average of just over a week on the island they contribute to the length of stay and their spending makes for a better revenue performance than the visitors who come for a shorter period.

The most recent economic review there showed the UK market falling by over six per cent in 2012.

Meanwhile, the European visitor is also similar to the UK counterpart in that he/she spends a longer time on the island.

So where does that leave the rating agency? Did they get it spot on? Perhaps the indicators at the time showed a positive outturn for the UK. It just goes to show that projections can go wrong and targets can be missed.